The Positive and Negative Aspects of Low Doc Loans

Being self-employed or a new immigrant to a place can make getting a loan very hard for an individual. Standard loans require much documentation to prove your income before they can grant you a loan. If you happen to need the money right away, for whatever purpose it may be, your best answer to your predicament is to apply for a low doc loan.

Low doc loans, from the name itself, imply that minimal documentation is required from the applicant. This is suitable for individuals who are self-employed and cannot provide a payslip or any proof of income. Do take note that this does not promote individuals to declare income that does not exist. Applicants are expected to declare facts regarding their income and they may be required to sign some papers as a self-verification of that declaration. This just helps people who want to keep their true assets private a chance to apply for a loan. Low doc loans were designed to meet a specific market, and truthfully, that market is growing considering the number of people who are opting to build their own businesses or work from home.

Minimal Documentation – There are still some documents that you would have to provide in order to be granted this loan. The more documents you provide, the lesser the interest rate would be. Most often, a signed self-declaration of income is the common requirement. You may also have certifications from your accountant as additional paperwork. Some banks can also let you bring your assets in as collateral for the loan.

Faster Loan Processing – With minimal documents to submit, applications for these loans are processed faster than standard loans.

For People with Bad Credit Score – Low doc loans does not pry into your credit score before granting the loan, as most home or car loans do. This gives people with bad credit, but who are currently earning good, a chance to get the loan they need.

Different Deals to Match Your Needs – The competition between banks and lending companies have grown stiffer as they vie to win most of the market. You will see that each has many offers that will be flexible to suit your needs and capacity to pay.

Helps People Jump-start a Business – These loans are best for individuals who want to start their own business but do not have the necessary capital. Without a huge income, it is very seldom for these individuals to acquire their financial needs through standard loans, but low doc loans can be the answer to their prayers.

Disadvantages of Low Doc Loans

Higher Interest – Considering the risk that lenders take in this type of loan, you will expect it to come with higher interest rates. However, as mentioned, you can lower this rate with the amount of evidence you can provide about your income.

Higher Deposit – Most applicants are granted only up to 80% of their required loan and the remaining 20% is to be paid through deposits or equities.

Short Loan Period – These loans also have shorter terms and additional security may be demanded from debtors after a year.

More Fees and Charges – These loans also come with other fees and borrowers are required to get a mortgage-insurance.